How does damping in the generic spring constraint work?
My solution for this problem is to add a second parallel spring.


the first spring has stiffness 10.0 and damping 0
the second stiffnes 1.0 and damping 1


Now it acts together similar to a damped spring (I think not exactly physically correct).

A solution for physically damping is to set the damping in the spring to zero and the damping in the ridig body dynamics of the object to a high value. The disadvatage is that this damping is always relative to the world coordiate system.